New licensing activity drives 51% year-over-year growth in total annual revenue to record $665.9 million mark

Company Release - 2/23/2017 8:30 AM ET

WILMINGTON, Del., Feb. 23, 2017 (GLOBE NEWSWIRE) -- InterDigital, Inc. (NASDAQ:IDCC), a mobile technology research and development company, today announced results for the fourth quarter and full year ended December 31, 2016.

Fourth Quarter 2016 Financial Highlights

• Fourth quarter 2016 total revenue was $273.9 million, compared to $112.1 million in fourth quarter 2015. The $161.8 million increase in total revenue was primarily attributable to a license agreement signed during the quarter. Primarily as a result of that agreement, past patent royalties totaled $180.3 million.
• Fourth quarter 2016 recurring revenue was $93.6 million, consisting of current patent royalties and current technology solutions revenue, and was relatively flat compared to fourth quarter 2015.
• Operating expenses were $64.7 million, a 10% increase compared to $58.8 million in fourth quarter 2015, primarily attributable to higher incentive-based performance compensation and patent amortization, and due diligence costs. Intellectual property enforcement expenses were $3.5 million, a 30% decrease compared to $5.1 million in fourth quarter 2015.
• Net income¹ was $136.5 million, or $3.85 per diluted share, compared to $33.0 million, or $0.92 per diluted share, in fourth quarter 2015.

Full Year 2016 Financial Highlights

• Full year 2016 total revenue was $665.9 million compared to $441.4 million in 2015, a 51% increase. This reflected an increase in past sales from $68.7 million in 2015 to $309.7 million in 2016, offset by slightly lower recurring revenue in 2016.
• Recurring revenue was $356.2 million in 2016, representing a decrease of 4% compared to $372.8 million in 2015. The decrease was primarily attributable to lower per-unit royalty revenue.
• 2016 operating expenses were $228.5 million, compared to $232.9 million in 2015. Intellectual property enforcement and non-patent litigation expenses were $16.5 million, a 49% decrease compared to $32.7 million in 2015.
• Net income was $309.0 million, or $8.78 per diluted share, compared to net income of $119.2 million, or $3.27 per diluted share, in 2015.
• During 2016, the company recorded $430.8 million of cash provided by operating activities, compared to $114.5 million in 2015. The company generated $392.2 million and $81.0 million of free cash flow² in 2016 and 2015, respectively. These increases were primarily the result of new patent license agreements.

“2016 was a tremendous year for the company, reflecting the strength of our research contributions as well as the leverage and power of the research-based licensing business model,” said William J. Merritt, President and CEO of InterDigital. “In addition to our successes in helping to define 5G and future Internet of Things technologies on the research side, our licensing efforts drove substantial cash flow while we were able to slightly reduce overall expenses on a year-over-year basis.”

Additional Financial Highlights for Fourth Quarter 2016

• In fourth quarter 2016, the company recorded $233.3 million of cash provided by operating activities, compared to $86.8 million in 2015. The company generated $222.5 million and $79.2 million of free cash flow in fourth quarter 2016 and fourth quarter 2015, respectively. These increases were primarily the result of new patent license agreements.
• During fourth quarter 2016, the company acquired Hillcrest Laboratories, Inc., a pioneer in sensor processing technology, for approximately $48.0 million in cash, net of $0.4 million cash acquired.
• The company's fourth quarter 2016 effective tax rate was approximately 34.0% compared to 31.1% during fourth quarter 2015 based on the statutory federal tax rate net of discrete federal and state taxes.
• Ending cash and short-term investments totaled $952.8 million.

Additional Financial Highlights for Full Year 2016

• The $4.3 million decrease in operating expenses was primarily attributable to the $16.1 million decrease in intellectual property enforcement and non-patent litigation and a $5.7 million decrease in commercial initiatives expense. These decreases were partially offset by a $9.3 million increase in performance-based compensation, driven by increased accrual rates as a result of new patent license agreements signed during 2016. Additionally, depreciation and amortization increased $4.8 million due to the growth of our patent portfolio.
• During 2016, the company repurchased 1.3 million shares of common stock for $64.7 million.
• The company's 2016 effective tax rate was approximately 27.7% as compared to 35.7% in 2015, based on the statutory federal tax rate net of discrete federal and state taxes. The decrease in the effective tax rate was primarily attributable to the net benefit of including a domestic production activities deduction for the current year and the benefit recorded for amending prior returns to claim the deduction, neither of which were included in the prior year.

Near-Term Outlook:

InterDigital currently expects that sales volumes of the company's per-unit licensees in fourth quarter 2016 and the new agreements signed during 2016 will drive first quarter 2017 total revenue to a range of between $91 million and $96 million, comprised entirely of recurring revenue. This revenue guidance is based on royalty reports received to date, and does not include the potential impact of any new patent license, technology solutions or patent sale agreements that may be signed, or any arbitration or dispute resolutions that may occur, during the balance of first quarter 2017.